Deep Changes in the Business of Car InsuranceNexyad White Paper #3

1 – Role of the insurer
The insurance idea would have appeared on the occasion of the first great journey by boat, and the appearance of “modern” insurance is generally dated from the 19th century.
The principle of insurance is easy to understand : if accidents are rare (compared to the number of occurrences – travel, car trips, etc.), a simple and prudent idea then is to “put aside” a certain amount of money for each occurrence (which on average does not lead to an accident) and to use the money to repay the cost of the claim in case (rare) of accident.
One could imagine that individuals manage themselves each a “pot” of this type. Of course, even if an accident is rare, you never know when it happens and it may happen at any beginning of the process so that the pot is almost empty.
We could then easily make a common pot between several people, to smooth it : if three people make a common pot, it is unlikely that the three have an accident while starting hoarding. But… it is anyway possible. Although if the pot is conceived with hundreds of thousands of people there, you secure the problem of “instant” of the accident. This is the « law of large numbers », which allows a deterministic modeling of chance : the odds. It remains to define the amount of money to set aside each month for example (or each travel).
To handle this (a pot shared by hundreds of thousands of contributors, the estimated sum to put aside, etc…), it is obvious that it is necessary to have qualified personnel, sufficient… and finally, it happens naturally to the idea of the Insurance Company.